For more than a year now, ever since the very first rental units at the monolithic, magnificent Mercedes House came on the market, Two Trees Management has been debating what to do with the rest of its zig-zagging luxury building on the Far West Side of Manhattan. The massive block-long project was a gamble for the Brooklyn firm, about as big and brash and far away from its home turf in Dumbo as one could get (without going to Godforbid, N.J.).
Mercedes House was built in two phases, a swooping base and a connected tower. There would be two sets of rentals, and, the cherry on top, a contingent of condos crowning the 1.3-million-square-foot building, with better finishes and excellent views, on floors 22 through 32. “Everything was high end,” Two Trees managing director Asher Abehsera told The Observer late last week.
He had called in part to set the record straight about the sale of those condos units in a block to Invesco, the Atlanta-based investment management group, that was widely reported last week. Mr. Abehsera was annoyed by the apparent suggestion in some outlets that the 162 condos, which had traded for $170 million, had somehow been sold from a position of weakness, which he insisted was not what happened. “It was totally not the case that we could not sell the condos individually,” he said. “It was that we found a deal that met our numbers, and met them quite nicely.”
According to Mr. Abehsera, he had reached out personally to a few long-time partners—no brokers, just him and his professional pals—and Invesco came back with a deal that worked for all the units, so why wait? Why waste time and money on condo offerings, marketing, sales? “The idea was, for them, their worst apartment started on the 22nd floor and almost every one has water views,” Mr. Abehsera said. So it was a good deal for both sides.
An Invesco representative declined to comment on the deal.
It does fit a pattern for the firm, though. Earlier this year, Invesco bought two nascent condo projects in Brooklyn, 75 Clinton in the Heights and the Arias in Park Slope, and is in the process of converting them into rentals. “This is not a new strategy for them,” one person familiar with the deal said.
Mr. Abehsera said that Mercedes House is starting to fit the pattern for residential development in the city, which remains difficult because of lending standards, especially on 80/20 projects where one-fifth of the units are set aside for affordable housing (albeit in exchange for subsidies).”Large-scale 80/20 projects today in Manhattan is just not economically viable anymore,” he said.
“Look at us and MiMA,” Mr. Abehsera continued. “You sell off the bottom, in our case to Mercedes, in theirs the Yotel, you build a mix of rentals in the middle, and you put condos on top, but maybe you sell them in a block instead of pieces,” he said. Like the Mercedes House, though, the rental market has proven so strong that Related decided to swap its top-of-the-line, top-of-the-tower 1 MiMA condos for high-end rentals.
“Simply put, we achieved the value we were seeking,” Mr. Abehsera said.